When it comes to AML and customer due diligence for banks and financial institutions specifically, high-risk customers are individuals who pose the highest level of money laundering risk. This includes: Customers linked to higher-risk countries or business sectors.
A high-risk customer interaction is any interaction that could, where unauthorised access is gained, result in a customer losing access to their telecommunications service or theft of their personal information.
In line with the Reserve Bank of India's (RBI) directions on risk management under the Know Your Customer (KYC) norms and Anti-Money Laundering (AML) standards, Non-Banking Financial Companies (NBFCs) are required to categorize their customers into low, medium, and high-risk categories.
Medium Risk: Customers who are conducting normal nature of transactions but lack sufficient information and documents for categorizing under 'Low Risk' shall normally be categorized as medium risk customer.
The illustrative examples of low risk customers could be salaried employees whose salary structures are well defined, people belonging to lower economic strata of the society whose accounts show small balances and low turnover.
Low/Medium: Risk events that can impact on a small scale are rated as low/medium risk. Medium: An event resulting in risks that can cause an impact but not a serious one is rated as medium. Medium/High: Severe events can cause a loss of business, but the effects are below a risk rated as high.
KYC risk rating system is a vital tool used by financial institutions to evaluate the level of money laundering risk associated with a particular customer. By assessing the factors mentioned above, companies can detect high-risk customers and take appropriate measures to prevent fraudulent activities.
There are four specific types of risks associated with each business – hazard risks, financial risks, operational risks, and strategic risks. The ERM process includes five specific elements – strategy/objective setting, risk identification, risk assessment, risk response, and communication/monitoring.
KYC is required to be done once in every two years for high risk customers, once in every eight years for medium risk customers and once in every ten years for low risk customers.
High-risk behaviors are defined as acts that increase the risk of disease or injury, which can subsequently lead to disability, death, or social problems. The most common high-risk behaviors include violence, alcoholism, tobacco use disorder, risky sexual behaviors, and eating disorders.
Typically, enhanced due diligence procedures are required when customers represent a greater risk than CDD guidance can solve for. Some examples of this include: High-risk customers like PEPs or known financial criminals and close family members. Business relationships with unclear or unexplained conditions.
KYC requirements for law firms in Australia include collecting and verifying the identity of clients and any beneficial owners of the firm. This includes collecting and verifying personal information such as name, date of birth, address, and government-issued identification.
When dealing with an at-risk customer, it's critical to go back and make sure that you're really understanding what their objectives are, and where the failures might have been during the customer journey. Look at how their business outcomes align or misalign with usage metrics that you're seeing.
Examples of low-risk customers may be salaried. employees whose salary structures are well defined, individuals from the lower economic strata of. the income level whose accounts show minimal balances and low turnover, Government Departments and Government-owned companies, regulators and statutory bodies etc.
The OCC has defined nine categories of risk for bank supervision purposes. These risks are: Credit, Interest Rate, Liquidity, Price, Foreign Exchange, Transaction, Compliance, Strategic and Reputation. These categories are not mutually exclusive; any product or service may expose the bank to multiple risks.
Types of Risks
Widely, risks can be classified into three types: Business Risk, Non-Business Risk, and Financial Risk. Business Risk: These types of risks are taken by business enterprises themselves in order to maximize shareholder value and profits.
KYC is designed to verify a customer's identity, financial profile and risk level, and CDD is the key to this process. Customer Due Diligence (CDD) means collecting and evaluating the new customers' information and determining their risk for illegal financial transactions.
After deciding the probability of the risk happening, you may now establish the potential level of impact—if it does happen. The levels of risk severity in a 5×5 risk matrix are insignificant, minor, significant, major, and severe.
The abnormal chromosomes that cause AML which can more easily be cured are call “low risk” mutations, and those that cause subtypes of AML that are hard to cure are called “high risk” mutations. Risk in this case means both risk for relapse and risk for treatment failure.
Types of Risk
Broadly speaking, there are two main categories of risk: systematic and unsystematic. Systematic risk is the market uncertainty of an investment, meaning that it represents external factors that impact all (or many) companies in an industry or group.